Why RIAs might consider investing more in trust services

The role and benefits trust services play for advisors continue to be significant.

“Prior to 20 years ago, trust services were not a major focus for many advisors, and they tended to encourage clients to use a family member as the trustee or left it to the estate planning attorney to recommend a bank trust department," explained Rosemary Hueser, senior vice president and manager of Advisor Trust Services at BOK Financial. 

“For many banks, it wasn’t normal practice to allow outside investment advisors to manage trust assets when they were serving as trustee, and even if they did allow this, the assets would need to be held at the bank rather than the advisors custodial platform,” she said.

The growth of data aggregators and technology integrations allowed banks and trust companies to let the trust assets be held at outside custodians when working with outside advisors, thus the concept of "advisor-friendly" trustees has emerged. Advisors are now recognizing the need to integrate trust services into their offering for high-net-worth clients, she said.

BOK Financial, a 100-year-old financial institution, with origins in Oklahoma, continues to deliver trust administration services for advisors and their clients.

A trust delivery model not only increases the value of an advisor and a firm but it’s also a natural addition to any firm’s succession plan, according to BOK Financial.

“We’ve worked under the 'advisor friendly' model for decades,” said Hueser. “We also allow the open architecture for the advisors to use their preferred custodial platform.”

One of the key drivers behind this shift to trusts was the need for advisors to protect their client relationships. For instance, when a client dies, their trust assets are often transferred to a local bank trust company that is named in their trust document or will, resulting in the advisor losing the associated investment management fees and potentially the relationship with the client's family.

"By ensuring the client's trust documents name the advisor as the investment manager and a corporate trustee, advisors can prevent the loss of those assets and retain the opportunity to work with the next generation," said Hueser.

Corporate trustees have become an attractive option for advisors and their clients, as they provide a level of professionalism, experience and objectivity that individual trustees often lack.

The reason that advisors choose an “advisor friendly” corporate trustee generally is twofold.

“Either the document requires a corporate trustee, or they’ve learned the hard way,” Hueser said.

The “hard way,” she described, typically involves family disputes that arise after the death of a matriarch or patriarch when a family member serves as trustee.

While individual trustees, whether family members or friends, may be less expensive in the short term, they can quickly find themselves in over their heads, particularly when subjective decisions about discretionary distributions need to be made and legal advice is sought after.

“There’s personalities and emotions involved as well with individual trustees,” Hueser said. “It’s also the lack of understanding by beneficiaries that the trust isn’t an open checking account for their at-will requests. The trust document guides decisions and where it’s silent, the intent of the grantor and state trust statutes must be considered and followed."

By contrast, corporate trustees provide expertise through a structured, personal, yet objective approach and alleviate the personal liability associated when individuals serve as trustee. They are also held to a higher fiduciary responsibility by their regulators and must adhere to the trust document direction and follow applicable state and federal laws, all while acting impartially.

Meanwhile, there are dozens of duties and responsibilities that are required of a trustee, from filing tax returns to collecting all death benefits and obtain appraisals on certain assets.

“We’re licensed, trained and highly regulated. We do this all day, every day and do it very well,” she said.

Beyond client acquisition and retention, corporate trustee services can also enhance the overall client experience and improve the advisor's operational efficiency.

Advisors can focus more on investment and relationship management and holistic financial planning by leveraging the trustee's expertise in trust administration and compliance, while also streamlining data aggregation and reporting.

Additionally, advisors who successfully integrate corporate trustee services into their model not only solidify client relationships but also position themselves to engage the next generation, said Hueser.

“When someone passes away, the first person the family is going to go to is their advisor. If that advisor can’t help them at the time they need it the most, that hurts the family… This is the best way to do it. Get involved.”

However, she cautions that while some advisors may want to serve as trustee for their clients, not all may be well-suited to serve, nor will their firm allow them to serve in that role. She noted that while any advisor can technically serve as a trustee, the compliance and liability involved can be a significant deterrent.

Ultimately, the largest reason to get a corporate trust is the experience and expertise in delivering trust administration over the life of the trust while keeping the advisor at the heart of the relationship, Hueser said.